With providers and operational leaders preparing to confront an extraordinary health emergency, hospital CFOs and finance executives have a part to play in the battle against COVID-19. The following five steps can improve financial performance immediately while helping support a hospital’s long-term financial outlook: ’
- Develop a system for tracking COVID-19 expenses. Hospitals and health systems may be eligible for waivers, federal aid, and other relief initiatives. CFOs will need to stay on top of the quickly moving regulation changes that may provide supplemental funding to organizations most affected by treating COVID-19 patients. It is important to accurately track any COVID-related expenses in ERP systems so documentation can be furnished to efficiently procure any of the relief initiatives.
- Perform an income statement/balance sheet “reality check.”Look into every aspect of the income statement and balance sheet for opportunities to protect cash. This exercise can strengthen short-term profitability and cash position by identifying nonessential expenses and determining whether they can be delayed or eliminated.
- Review current nonlabor supply vendor and purchased service contracts and determine whether some can be renegotiated, suspended, or terminated.
- Analyze days in account payable and determine whether it is reasonable to hold payments for certain vendors.
- With interest rates at historic lows, consider working with lenders to modify current operating line of credit or other short-term debt to ease the burden of operating cash fluctuations.
- Monitor supply inventories to provide information about current levels and expected shortages based on delivery timelines.
- Review capital expenditures. Work with leadership to review current capital projects, upgrades, and other program expansions that are cash intensive, and determine which projects can be delayed. Specific criteria should be given to projects that have an immediate return on investment or can facilitate clinical teams’ ability to address the impending surge in patient volume. Unless the project can deliver in these two areas (or involves a regulatory requirement that must be met), the organization should consider delaying it.
- Align finance workflows to changing clinical processes. With staffing shortages and an anticipated patient surge, current patient workflows may be significantly altered. Finance teams can work with operational leaders to identify any changes in financial systems required to accurately track and capture the care being provided.
For example, observation units might serve as overflow inpatient nursing units. Teams from Finance, Operations, and IT should review the current workflow and revise any clinical and financial system structures to accurately record when a patient is in a nursing unit as opposed to an observation unit. This will help avoid any revenue cycle inefficiencies related to documentation, billing, claims processing rework, and follow-up claims rework, and ensure cash collection is not impacted. - Protect your organization during unpredictable stock and bond market activity. Over the last few weeks, record stock market drops and wide-ranging sell-offs of municipal bonds have caused concerns over hospital and health system bond issues and current situations regarding access and management of long-term debt. CFOs will need to determine any potential exposure to their current situation, especially if the organization has issued variable-rate bonds and fixed-rate swaps and if the financial performance starts to approach liquidity covenants in long-term debt agreements.
The financial implications of COVID-19 on hospitals and health systems will be significant. Your success as a financial leader will be judged by your ability to analyze your organization’s situation quickly, gain consensus on next steps, and take decisive action.
Published March 23, 2020